The state should provide an income safety net for two main categories of people: those who, through sickness, age or disability, cannot work; and those who can, but for whom no jobs are available. On that much there is political consensus in Britain.

It is a third category that makes welfare a contentious issue: those who could work, but who choose not to. Getting those people into employment is the motive behind the government's current welfare reform plans, some of which take effect this month, with more to be announced in December.

Talking about people who prefer benefits to work is controversial even when the economic outlook is rosy. When businesses are shedding jobs and households are struggling to pay debts, it could seem plain callous. There have been calls for the plans to be delayed. But rising unemployment makes the case for systemic change stronger, as long as the reforms are seen to be fair. Otherwise, many of those who lose their jobs now will be condemned, like the casualties of past recessions, to a lifetime of welfare dependency.

In reality, there is no clear boundary between inability and unwillingness to work. Joblessness erodes people's self-esteem and deprives them of the skills and experience that make them employable. The government's plans recognise that problem. The idea is to move away from a system that doles out cash with no conditions attached to one that exchanges money for promises to look for work or undergo training.

That is a fair deal. But two things make it controversial. First, the fact of sanctions - temporary loss of benefits - for those who do not uphold their side of the bargain. Second, the plan to pay the private and voluntary sectors to find work for people if job centres fail to do so.

As of this week, lone parents whose youngest child is 12 will receive the jobseekers' allowance (JSA) instead of income support, meaning payments will be more conditional on pursuit of employment. Meanwhile, every recipient of incapacity benefit (IB) is due to undergo a 'work capability assessment'. Those deemed unable to work will get a higher level of benefit; the rest will be expected to look for work.

Since the most generous payments will be reserved for fewer people, the reforms are bound to be decried as a cynical cost-cutting exercise.

James Purnell, Work and Pensions Secretary, points out, rightly, that the more cynical path would actually be to leave the system as it is. That way, the 2.7m people currently on IB would be kept conveniently apart from official unemployment statistics. That sleight of hand was devised by the Tories in the 1990s. It blurred the boundary between joblessness, the malaise it induces and sickness. It all but guaranteed that victims of 1980s deindustrialisation would become reliant on long-term welfare. It is to Labour's credit that it is trying to reverse that process.

The reforms do not punish people for being out of work, but for refusing to engage with the job-seeking process. A claimant will not be sanctioned if there are simply no suitable vacancies in the market.

That is the theory. But there is huge potential for the political and financial imperative of reducing welfare rolls to override sensitivity to individual circumstances. That is especially true once private sector agencies get involved. To mitigate that danger, the bureaucratic and arcane appeals process must be reformed to keep up with changes in the law. If claimants are to be made more answerable to the state for the money they get, institutions - private and public - deciding the validity of their claims must be held to the same standards of accountability.

If the government is serious about creating a new welfare bargain between the state and the individual, both sides must be clear about their responsibilities as well as their rights.

There is a fine line between expecting welfare claimants to show motivation towards self-sufficiency and punishing them for the misfortune of being unemployed.

In theory, that line does not move when the economic outlook changes. But the government must proceed with caution to avoid finding itself on the wrong side during the coming recession.

· This article was amended on November 30 2008. The leader above described in a rhetorical flourish 'a system that doles out cash with no conditions attached to one that exchanges money for promises to look for work or undergo training'. We should clarify that there are conditions attached to the current Jobseekers' Allowance: applicants must prove they are actively looking for work.